Forex Trading in Pakistan – The Big Business

What is Forex: Forex stands for Foreign Exchange. The Forex market is also referred to as FX market in short. Forex currency trading is conducted round the clock, 5 days a week and it is the largest market in the world. Prior to 1998, the Forex market was only for large financial firms, trading companies and banks. Since 1998, the Forex market is open to everyone. The purpose of establishing a world-wide Forex market is to facilitate the trading that is the buying and selling of currency by the central government commercial banks and small investors around the globe. There are major trading centers worldwide in many cities such as London, Frankfurt, New York, Tokyo there is no set location for this trading. It can be conducted by telephone and through the internet from every part of world.

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Currencies involved in Forex trading

Currency exchange takes place between the major currencies and supports global trade in the world. The major business revolves around the main currencies like the US dollar (USD), the British pound (GBP), the Euro (EUR), the Japanese yen (JPY) and others. All tradings in the world, both export and import, involveForex.

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Basic Principles

Before you begin Forex trading, you need to understand the basic principles of the currency markets. For this purpose you need to learn the tools of the trade that is the technical and fundamental analysis tools. Other than this basic technical information, you do not have to be an expert in the currency markets to make money. Just learn the basics of of Forex trading and you are on your way to beginning a money making career in Forex trading.

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How to start Forex trading:

It is possible to earn an excellent income from online currency trading in Pakistan or anywhere else in the world. You can join this market as a small player by first understanding the fundamentals of currency markets and learning the skills ofForex trading online. You will require a small capital investment in the beginning. If you are a small player in the forex market, you will not be able to trade on your own and you will have to hire the services of a Forex broker or an online forex company where you can open your account with a reasonable amount and begin your forex business

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Quaid-i-Azam

Muhammad Ali Jinnah?

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Pakistan Rupee Continues to Slide

The rupee climbs up one paisa against dollar on Monday after hitting its lowest during the weekend. Dealers said that 1-dollar was bought for 86.20 rupee and sold for 86.24 rupee.

State Bank of Pakistan announced in its weekly statement that foreign exchange reserves rose to a record 16.7 billion dollars in the week ending September 24, 2010. Foreign exchange inflows from export receipts and remittances sent by overseas Pakistanis are not sufficient to strengthen rupee. Rupee is likely to weaken further.

‘Reformed general sales tax’ (RGST) rate announcement and implementation was postponed last month that created doubts in the market and led to tumbling rupee.

Money traders increased dollar stocks to deal with the imposition of ‘reformed general sales tax’ (RGST). The tentative political and economic conditions also led traders to buy dollars.

The State Bank increased the interest rate from 13 percent to 13.5 percent, and export refinance rate from 8.5 percent to 9 percent to manage inflation that could negatively impact industrial production and exports.

Many countries have slashed interest rates to encourage investment and enhance industrial production. Enhanced interest rates can lead to lower industrial production and decreased exports. Despite State Bank’s attempt to control inflation by increasing interest rates, prices are still climbing to new heights.

This year rupee shed 1.19 percent in value, whereas in 2009 rupee lost 6.17 percent. Continuation of uncertain political and economic conditions can reduce rupees value even further.

The rupee dropped against other currencies also. Between July, 1st 2009 and September, 27th 2010 rupee fell 1.88 percent against euro, shed 2.15 percent versus pound sterling, lost 17.70 percent against yen, dropped 16.72 percent versus Canadian dollar, and fell 21.01 percent against Australian dollar.

Despite Missing Deadlines, Pakistan Gets $1.13 Billion IMF Loan

The International Monetary Fund announced Friday that it will release $1.13 billion aid package for Pakistan despite country’s failure to meet conditions specified in loan agreement.

Pakistan had requested for a waiver for its inability to meet quarterly budget deficit target and net government borrowing limits from the State Bank of Pakistan.

Murilo Portugal, IMF’s deputy managing director and acting chairman said, “preparations for important and politically difficult tax reforms have moved forward, and there has been steady progress in financial sector reform”.

IMF has approved total of $10.66 billion loan for Pakistan and with the release of $1.13 billion it has disbursed $7.27 billion so far. IMF has also accepted Pakistan’s request to merge the remaining three payment instalments into two. The IMF said Pakistan has missed two conditions because of the delay in getting pledged aid from other nations.

Portugal said, “Pakistan’s vulnerabilities remain high, due to persistent inflation, security-related spending pressures, energy-sector problems and shortfalls in revenue collection and external financing”.

United States is exerting pressure on Pakistan to send troops to North Waziristan to fight Taliban who claimed responsibility for the recent failed bombing attempt in New York. The IMF announced its readiness to adjust Pakistan’s budget deficit and borrowing targets to let Pakistan manage necessary funding for such priority programs as security.

Portugal said, “these challenges highlight the importance of pursuing a credible fiscal consolidation, maintaining a flexible exchange rate and a cautious stance to monetary policy, and improving governance”.

IMF accepted Pakistan’s request to increase the end-June 2010 budget ceiling by 0.15 percent of gross domestic product, and the floor for net foreign assets of the State Bank of Pakistan was raised by $300 million.

Pakistan Rupee Gains Vs US Dollar: Traders Plan to Short

Pakistan rupee gained esteem against US dollar but lost ground to the Euro Wednesday. Forex traders in Karachi Thursday plan to hold a short position on the US dollars with expectations that it will decline further.

Buy rate for dollars in the interbank market today were Rs. 85.00 and sell rates were Rs.85.05. In both directions Pakistan rupee was standing strong.

During the Asian trade dollar fell to its lowest in more than two months against yen as investors dumped long positions against other currencies that had built up to levels not seen in more than a year.

Investors have been picking up dollars in recent months as Greece’s credit and fiscal woes hit the euro and worries over a potential hung parliament and speculation that Britain’s asset-buying scheme could be revived knocked the pound lower.

The rupee was higher by 20 paisa against the US currency for buying and selling at 85.20 and 85.40 in open market. The dollar touched a two month low against the yen in Asia on Wednesday due to selling by Japanese exporters, falling long-term U.S. interest rates, and expectations for weak U.S. jobs data.

During Asian trading hours, the dollar fell to Y88.47 on EBS, the lowest since Y88.32 on Dec. 14. That compares with Y88.75 in New York late Tuesday.

If coming U.S. data are weaker than expected, adding to speculation that the Federal Reserve may not start raising its policy rate as soon as had been expected, U.S. yields could fall further, causing the dollar to decline more against the yen, Inoue said. He tips the dollar to trade in a range of Y83.00 to Y91.00 in the coming days.

However, Pakistan rupee lost 50 paisas againts the euro: buying and selling at 114.85 and Rs 115.35. The euro had hit a two-week high Wednesday against the dollar in a sign that Greece’s stepped-up efforts to cut its gaping budget deficit has helped calm investors fears over a possible debt crisis.

But the reprieve for the common currency may not last: There is no assurance the Greek measures will be fully implemented nor was there any word from Germany or France, the euro zone heavyweights, whether they would offer more than just verbal support to the debt-laden Greeks.

Investors are now waiting to see whether “an actual bailout will happen,” said Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global in Chicago.

Pakistan Stops Financing Crude Oil Imports

As of yesterday State Bank of Pakistan will not sell foreign exchange to banks for financing the crude oil imports. SBP had given banks a full working week to get prepared for securing funding from the international market.

The present measure has been adopted in the wake of Pakistan rupee losing 53 paisa or 0.6 per cent of its value within 4 days against the dollar as banks began to buy US dollars in advance. Bankers anticipate a further decline in the rupee value as they start financing crude oil imports. Crude imports stood at $4 billion or more than 40 per cent of the overall petroleum imports of $9.5 billion in FY09.

Pakistani bankers estimate this year’s crude imports around $3.5 billion if the global prices remain range-bound and local refineries’ output that declined eight per cent in July-November 2009 does not rebound quickly.(In July-October 2009 crude imports fell to a billion dollars from two billion dollars in a year-ago period due to reduced refineries’ production and lower international prices )

The banks in Pakistan need some $300 million per month to finance crude oil imports. The rupee depreciated a bit immediately after last announcement and it may lose some more value in next few weeks unless there are big inflows of foreign exchange.

After the talks between Pakistan and the IMF mission held in Dubai last month, the government is expecting $1.2 billion after the approval by the IMF board scheduled to meet on December 21-22.

But IMF’s Director of External Relations Department Caroline Atkinson has said discussions with Pakistan were in progress, implying that the Dubai talks were not final and that the release of the fourth trance of the $7.6 standby credit might be delayed.

If Pakistan does not get the fourth trance this month a steeper decline in the rupee value of rupees in anticipated in the last weeks of December.

Pakistani bankers also concerned that the year-end servicing of both sovereign and corporate foreign debts would keep the rupee under pressure.

Foreign debt servicing in October-December 2009 was estimated well above a billion dollars, the major share of which was paid in December. In July-September Pakistan spent $1.2 billion on foreign debt servicing despite a roll-over of $450 million.

In July 2008, the State Bank had decided to provide foreign exchange to banks for financing import of crude oil and petroleum products to keep the exchange rates stable amidst inconsistency triggered by international financial crisis and recession. But it stopped providing foreign exchange for financing of import of furnace oil from February 2009 and for that of petroleum products from July.

Now it has stopped selling foreign exchange for crude oil as well—reportedly to meet one of the conditions of the IMF standby loan—thus restoring the pre-July 2008 arrangements wherein banks were responsible for arranging foreign exchange to finance imports of both crude oil and all petroleum products.

Between February 2009 and 10 December 2009, when banks started financing of furnace oil imports on their own, the rupee has lost 6.8 per cent of its value against the US unit. A senior State Bank official remarked. “This should remove fears that the shifting of financing of crude oil imports to banks would lead to a big depreciation in the rupee value,” He also added “The rupee might lose a bit but we neither foresee a major decline in its value nor a serious inconsistency in exchange rates.”

Bankers also dispel the possibility of a speculative attack on the rupee value saying the State Bank is yet to allow forward selling of foreign exchange to importers and thus the question of manipulating exchange rates does not arise. But they say the central bank may allow it sometime next year as the IMF is believed to have raised this issue during talks with SBP authorities.